Capacity vs Demand Management at Portfolio Level

The Fundamental Equation

Demand = All the work the organisation wants to do (initiatives, projects, BAU, support, improvement) Capacity = All the people and budget available to do work Gap = Demand - Capacity (almost always positive — more demand than capacity)

The Portfolio Manager's job is to make this equation visible, help leadership make informed trade-offs, and ensure capacity is allocated to the highest-value work.

Mapping Demand

Demand Categories

All demand falls into one of four categories:

1. Strategic initiatives: New capabilities, products, or transformations aligned with strategy 2. Regulatory and compliance: Mandatory work with external deadlines (non-negotiable) 3. Business as usual (BAU): Ongoing operations, maintenance, support, and minor enhancements 4. Technical investment: Infrastructure upgrades, technical debt, platform improvements, security

Demand Intake

Establish a single intake process for all demand:

• Every request is captured in a consistent format (initiative brief)
• Minimum information: description, business justification, estimated effort, expected benefits, urgency
• Requests are triaged and categorised before entering the prioritisation process
• No work starts without going through intake (prevents shadow demand)

Demand Quantification

Express all demand in a common unit so it can be compared against capacity:

• Person-months or team-sprints (most common)
• Story points (if all teams use consistent sizing)
• Budget (£) (if cost is the primary constraint)

The unit doesn't matter as long as it's consistent across all demand and capacity.

Mapping Capacity

Capacity Sources

• Internal teams: Permanent staff allocated to portfolio work
• Contractors: Temporary resources with defined engagement periods
• Vendor teams: External delivery capacity under contract
• Shared services: Platform teams, architecture, security (partial allocation)

Capacity Calculation

For each team or resource pool: 1. Start with total headcount × working days in the period 2. Subtract: holidays, training, company events, sick leave allowance 3. Subtract: BAU/support allocation (typically 20-40% of capacity) 4. Subtract: governance and ceremony overhead (10-15%) 5. Apply productivity factor for new hires and ramp-up (50% for first quarter) 6. Result: available capacity for strategic work

The Capacity Waterfall

Visualise how total capacity is consumed:

` Total Capacity: 100% ├── BAU and Support: 30% ├── Regulatory (non-negotiable): 15% ├── Technical Investment: 15% └── Available for Strategic Initiatives: 40% `

This immediately shows leadership: "We have 40% of capacity for new strategic work. If you want more, we need to reduce BAU, defer regulatory work (risky), or add capacity (cost)."

The Demand-Capacity Dashboard

The Portfolio Kanban

Visualise all demand flowing through the portfolio:

Funnel → Assessing → Prioritised → In Delivery → Done

• Funnel: All incoming requests (unfiltered)
• Assessing: Being sized, scored, and evaluated
• Prioritised: Approved and waiting for capacity
• In Delivery: Active work consuming capacity
• Done: Delivered and benefits being tracked

WIP limits on "In Delivery" prevent overcommitment. If the column is full, nothing new starts until something finishes.

The Demand vs Capacity Chart

A simple bar chart showing:

• Total demand (all categories) in person-months
• Total capacity in person-months
• The gap between them

Show this quarterly. It makes the trade-off conversation concrete: "We have 200 person-months of capacity and 350 person-months of demand. We must defer or cancel 150 person-months of work. Here's the prioritised list — the line is drawn at position 12. Everything below is deferred."

The Allocation Pie

Show how capacity is currently allocated across categories:

• Strategic initiatives: X%
• Regulatory: X%
• BAU/support: X%
• Technical investment: X%

Compare against target allocation (what leadership wants) vs actual allocation (what's happening). Misalignment indicates either poor governance or unrealistic targets.

Making Trade-Off Decisions

The "One In, One Out" Rule

When a new initiative is approved, something of equivalent size must be deferred or stopped. This prevents the portfolio from becoming overcommitted.

The Quarterly Rebalancing

Every quarter, review the demand-capacity balance:

• Has demand changed? (New regulatory requirements, strategic pivots, market changes)
• Has capacity changed? (Attrition, hiring, vendor changes)
• Are current initiatives delivering as expected? (Should any be stopped or accelerated?)
• Is the allocation mix still right? (Too much BAU? Not enough strategic?)

Stopping Work

The hardest portfolio decision is stopping an initiative that's already started. But continuing low-value work because of sunk cost is worse than redirecting capacity to higher-value work.

Criteria for stopping:

• Benefits case no longer valid (market changed, strategy shifted)
• Delivery is significantly over budget or behind schedule with no recovery path
• A higher-priority initiative needs the same capacity
• The initiative has been deprioritised for 2+ quarters without progress

Communicating Capacity Constraints

To Leadership

"We can deliver 12 of the 20 requested initiatives this year. Here's the prioritised list. Items 13-20 are deferred to next year unless we add capacity (cost: £X) or reduce scope on items 1-12."

To Initiative Sponsors

"Your initiative is prioritised at position 15. Based on current capacity, it will start in Q3. If you need it sooner, we'd need to defer another initiative — which one should we discuss with the portfolio board?"

To Delivery Teams

"Your team's capacity is allocated as follows: 60% Initiative A, 20% BAU support, 20% technical investment. If a new request arrives, it goes through portfolio intake — not directly to you."

Measuring Capacity Management Effectiveness

• Demand coverage: % of total demand that can be funded with available capacity. Track trend.
• Capacity utilisation: Actual productive output ÷ available capacity. Target: 75-85%.
• Portfolio throughput: Initiatives completed per quarter. Should be stable or increasing.
• Time to start: Days from initiative approval to work beginning. Target: <30 days.
• Allocation accuracy: Planned allocation vs actual allocation per category. Target: within 10%.
• Overcommitment rate: Initiatives in delivery ÷ capacity available. Should never exceed 100%.

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Download the [Portfolio Dashboard template](/templates) for a capacity vs demand visualisation at portfolio level.